A bounce in the final hour of trading took the indexes off the lows of the day, but it was a dismal day for stocks. The indexes suffered substantial point losses, breadth was miserable and there was more technical damage.
The chaos in Hong Kong and the collapse of the Argentina peso were convenient reasons for some of the selling, but the real problem is the bonds continue to run higher and yields are fast approaching zero. Lower interest rates have been a market positive for years as cheap capital flowed into equities, but that dynamic has changed in recent weeks, and it is causing some major problems.
Rather than celebrating lower rates, the move into bonds is seen now as a flight to safety. The correlation between lower rates and a strong stock market has been broken and that is a major concern. If the market doesn't celebrate a dovish Fed, what is going to keep the indexes running higher?
To add to the problems, trading is thin and there isn't any major news flow expected during the dog days of August. Typically, we have very slow and dull trading due to lack of interest, but that lack of interest is manifesting itself now as a good reason to sell and go sit on the beach.
Technically, the indexes are still above the lows they hit last week, which is a positive, but with the selling Monday, it isn't hard to imagine that a retest may be in the cards. That might help to get the market to a decent low, but it is going cause some fear and loathing if it happens.
Have a good evening. I'll see you tomorrow.